What's In A "Soft Landing" Anyway?

John Authers from Bloomberg pointed out this morning an important historical fact: media mentions of a “soft landing” for the US economy increase dramatically right before a recession hits. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ November 17, 2023 |  [View Online]( |  [Sign Up]( What’s In A “Soft Landing” Anyway? “The idea that the future is unpredictable is undermined everyday by the ease with which the past is explained.” — Daniel Kahneman Dear , We’re a party to it… John Authers from Bloomberg pointed out this morning an important historical fact: media mentions of a “soft landing” for the US economy increase dramatically right before a recession hits. In so doing, he referenced a thread on X (formerly known as Twitter) commenting on the fact among traders. Here’s one: The phrase “soft landing” reliably accrues as economists, market analysts and money managers speculate what's likely to happen next. We used the phrase “soft landing” ourselves on Tuesday. And the number of mentions, according to a Bloomberg data search, skyrocketed on Wednesday. CONTINUED BELOW... POWERED BY THE ESSENTIAL INVESTOR CONTINUED... “An aircraft begins its flight path down toward the runway,” Authers explains the phenome. “It will look consistent with a ‘soft landing.’ It’s one of the phases through which a hard landing must pass.” Alas, the data set the pilots use when navigating the approach matter. If airspeed, altitude, wind direction… cargo weight… fuel in the tank… are miscalculated to even a small degree it’ll be difficult to stick the landing. This week, we’ve tapped on a few meters to see if the readings are correct: 1. The stock market rally. While it cooled a bit yesterday, you know we’re already suspicious of the November rally in the markets. For reference, in November, the S&P 500 and Dow are up over 7% and 5% respectively. The Nasdaq, still huffed on AI fumes, is up nearly 10% this month alone. On Tuesday, we explained how the rally is puffed up on the hot air breathed by “bond vigilantes” who stepped in to support [the Treasury market in late October](. "Conflating the stock market with the economy,” we wrote “financial journalists are falling all over themselves, claiming a ‘soft landing’ victory and an early arrival of Santa Clause." 2. Which brings us to the second data point: Consumer spending. A CNBC poll found that 63% of consumers “say” are cutting back on clothing, 62% on restaurants and bars, and 56% on entertainment outings. And yet … consumer spending was basically flat, dropping just 0.2% while US credit card balances saw the largest yearly leap on record this year. During the third quarter, credit card balances hit an all time high of $1.08 trillion according to the Federal Reserve Bank of New York’s latest Quarterly Report on Household Debt and Credit (the largest YoY increase since the New York Fed started tracking that data in 1999.) Meanwhile, household debt jumped 1.3% to $17.29 trillion in the third quarter. It’s likely consumer spending on credit will remain strong through the holidays. Our forecast for 2024 remains weaker same-store retail sales, increased loss to shoplifting and more “random” acts of organized theft. 3. Our third “soft landing” data set: Government debt. The budget debate didn’t make the headlines this week as many pundits, rightfully, thought it would. Current House Speaker Mike Johnson managed to get more Democrats to vote for his plan to kick the can down the road than he did Republicans. President Biden signed the stop gap measure this morning. So, we can all take a rain check on the next installment of magical political theater some time as yet determined time in January. Still the credit rating agency, Moody’s, has quietly downgraded the U.S. economic outlook to "negative" from "stable," while still maintaining a AAA rating (the agency’s highest). Fitch Rating and Standard & Poor's (the two other main ratings agencies) downgraded the government's long-term credit rating from AAA to AA+. Fitch in August, and S&P’s in 2011. CONTINUED BELOW... POWERED BY DEMISE OF THE DOLLAR CONTINUED... In summary: The bond vigilantes did their part in averting disaster in the Treasury market. Investors in the stock market have dutifully read a cooling inflation figure this week as a sign the Fed is going to continue its “hawkish” pause in rate hikes. Consumers are continuing to spend on credit despite rapidly rising interest payments on credit cards and those unfortunate enough to not lock in fixed-rate mortgages when they had the chance.  The government has done its part too by deferring any responsibility to manage the nation’s budget or currency. What’s not to like? All the data sets are in check for a “soft landing” … except one nagging detail. Since the Fed’s last serious bout with inflation in the early 1980s, they have only guided the economy to a “soft landing” once. As such, we agee with Bloomberg’s Authers conclusion: None of this proves anything. Economies move on very long cycles, meaning we have nowhere near enough data to be able to predict with statistical significance. I do however think that past experience does mean that we should tend to regard a hard landing as the default most likely outcome. Absent other evidence, when the Fed hikes this much, we should expect one. So it goes, Addison Wiggin P.S. [The Great American Shell Game is in full swing.]( The dollar gets weaker…your ability to buy essential items gets more costly… and like government, like citizen… it all goes on the tab. Everybody's dancin’... and the band keeps playing on. POWERED BY DAILY MARKET ALERTS Top 5 AI Stocks to Buy for 2023 The artificial intelligence (AI) revolution is already here. And it's about to change everything we know about everything. According to Grand View Research, the global AI boom could grow from about $137 billion in 2022 to more than $1.81 trillion by 2030. And investors like you always want to get in on the hottest stocks of tomorrow. Here are five of the best ways to profit from the AI boom. [Click Here to Download the FREE Report.]( The Daily Missive from The Wiggin Sessions is committed to protecting and respecting your privacy. We do not rent or share your email address. 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